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Honeywell to Acquire Thomas Russell

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Honeywell International Inc.(HON) recently announced that its UOP business is planning to take over 70% stake in Thomas Russell Co. for $25 million in cash. This acquisition is a strategic move on Honeywell’s part as Thomas Russell perfectly compliments UOP’s existing technology, materials and equipment, petroleum refining, petrochemical and gas processing portfolio.

Based in Tulsa, Oklahoma, Thomas Russell is a leading provider of technology and equipments for natural gas processing and treating. This company specializes in the design, engineering, fabrication and start-up of skid-mounted modular packaged plants systems for the recovery and upgrading of natural gas liquids (NGLs). NGLs, including ethane, propane, and butane are in high demand as feedstocks for petrochemical production.

With an operational fabrication facility in Port of Catoosa, Oklahoma and customer installations in more than 10 states in the U.S, Thomas Russell expects revenues to be approximately $425 million in 2012.  

Therefore, post acquisition, Honeywell’s UOP will emerge as a leader in offering a wide array of key technologies that allows shale and conventional natural gas producers to eliminate natural gas pollutants and pull through high-value natural gas liquids for petrochemicals and fuel.

However, the deal is subject to regulatory approvals and is expected to be completed by the fourth quarter of 2012. Although UOP does not expect the acquisition to impact its earnings in fiscal 2012; it, however, mentioned that the deal will be accretive to its earnings in 2013. Further, as per the terms of the agreement, UOP will acquire a 70% stake but it also has the right to acquire the remaining 30% stake in Thomas Russell, subject to a pricing clause on the basis of operating income performance.       

The acquisition of Thomas Russell comes at an opportune time for Honeywell’s UOP, especially in the growing market for processing shale gas and gas from oil fields. Currently, natural gas is the world's fastest-growing fossil fuel, with a projected consumption expected to reach 160 trillion cubic feet by 2035.

Therefore, consistent with the trend, Honeywell's UOP has increased its offerings in natural gas in recent years. Earlier, UOP acquired the gas membrane product line from W.R. Grace in 2009 and formed a special marketing alliance with Netherlands-based Twister B.V., a provider of advanced natural gas separation technology. In addition, Honeywell's UOP has also opened a gas processing design center in Kuala Lumpur, Malaysia in June 2008 and a manufacturing and operations center for natural gas membrane elements in Penang, Malaysia in July 2012, to cater to the growing natural gas markets in Southeast Asia and around the world.

Honeywell’s UOP is a 100% subsidiary of Honeywell International and is a part of the company’s Performance Materials and Technologies strategic business group. Honeywell currently has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

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